Andrew Putwain: Is there a general lack of knowledge around ESG in terms of resources available to a fund operator to gather information? What can be done about this?

Joseph Porterfield: Yes, there is no lack of awareness about ESG. This is due to it being a nascent issue, which institutional investors are grappling with.

Fund operators can view it as an opportunity to improve operations, technology, and results for their investors

Certainty will come as we build the ecosystem of industry infrastructure. That’s changing fast, and everyone’s tooling up to better understand and manage the issue. In this sense, fund operators can view it as an opportunity to improve operations, improve technology, and results for their investors.

A degree of variance can be helpful as we get their analysis, because it’s a different perspective

We can understand the feeling of lacking knowledge. We see this with ESG rating agencies – those providers who score firms on various sustainability factors – that produce wildly different scores for the same firm. Just as with bond rating agencies, a degree of variance can be helpful as we get their analysis, because it’s a different perspective. This argues, from my perspective, for a much more active approach than a fund operator thinking they could outsource these issues to service providers.

ESG is going to affect every aspect of a fund operator’s business – front, middle, and back office – and particularly their relationship with their underlying investors. There is an argument to understand the issues thoroughly and in-house and use that to push your organisation forward to serve your underlying investors.

Andrew: Firms want to be more sustainable and integrate ESG principles into their portfolios. How, from an operational point of view, do we go about this in a way that is good for the business?

Joseph: Managers should ask what they want to achieve by attacking this problem, then set out goals and principles of what they’re trying to achieve for their investors otherwise they’re dead in the water.

Existing resources on the reporting side requirements should be sufficient

There are two halves of this – one, which addresses the regulatory issues – so reporting requirements that are coming into place in the UK under the Financial Conduct Authority and in Europe under their separate requirements and the investment aspect of it.

Existing resources on the reporting side requirements should be sufficient. Fund operators should have the skills to meet these requirements. It’s the UK and EU saying that firms should be reporting their carbon emissions and investment managers, need to report that to their underlying investors. It’s the same as other financial information – reporting teams within fund operators already must gather and consolidate for their investors.

The biggest challenge may come from the investment side

Yes, it’s going to require attention to understand new things you’re going to have to act on with reporting, but it’s not so drastically different.

The biggest challenge may come from the investment side. If they choose to address the financial risk and opportunity, then that may pose other resource issues. Though, there’s nothing contextually different about the ESG information coming in that would require anything more than some additional training for existing analysts. Entrepreneurs and firms will come up with solutions for the reporting challenges.

 

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